Iran oil payment may hit another roadblock

India and Iran’s new mechanism to partially settle their oil trade in rupees may remain a non-starter unless India’s finance ministry exempts the payments from hefty local taxes, sources at Indian oil refiners said on Tuesday.

India will make 45 per cent of the payment for its oil from Iran in rupees, which Teheran will use to pay for imports from its second-biggest crude customer, the Islamic Republic’s envoy to New Delhi, Seyed Mehdi Nabizadeh, said.

Indian refiners are keen to use the new mechanism using rupees, as they suspect the current payment route through Turkey may close due to global sanctions.

“The new mechanism cannot be used unless payments are exempted from withholding tax...If we include other levies, total tax liability will translate to over 40 per cent,” said a source at an Indian refiner. A second source at another refiner said his company wanted clarity on this and was waiting for a response from the finance ministry.

“We have taken a view on this from tax experts and such payments are liable for withholding tax. Either we or the Iranians have to bear that cost. If we don’t deduct that amount, we will face problems when our accounts will be audited,” said the first source.

“The Iranian supplier, National Iranian Oil Co (NIOC), can be considered to be receiving income in India even if the account is held in some other entity’s name. So, Indian companies may withhold tax, unless some government notification is there specifically exempting it,” said a tax expert at an international consultancy firm.